Should You Buy These 4 Activewear Stocks?

Hanesbrands' success in activewear might make it a better investment than giants Nike, Under Armour, or Lululemon.

Apr 29, 2014 at 1:30PM

Nike (NYSE:NKE), Under Armour (NYSE:UA), lululemon athletica (NASDAQ:LULU), and now Hanesbrands (NYSE:HBI) are all part of the activewear segment. And besides Hanesbrands, all have traded lower since March. Therefore, with each company continuing to grow while valuation multiples decline, is there value within these four companies?

Different but similar
These four companies trade in the same space but are very different in operating approach. Nike is the worldwide leader of activewear, but the root of its business is in shoes, where the Nike and Jordan brands command an impressive 62.6% of the sneaker business in the U.S.

Under Armour is known for its sports clothing and technology to keep the body cool, hydrated, and odor-free. However, the company has since evolved into offering clothing for all consumers and has built a fast-growing shoe business as well.

Lululemon is known for its women's yoga pants but in recent years has expanded its products to include clothing accessories, jackets, and even a men's line.

Lastly, Hanesbrands isn't usually a company that comes to mind in discussing activewear. However, its fastest-growing segment is conveniently called Activewear; it is not only the fastest-growing business for Hanesbrands but also the most profitable.

Finding value
Although we're not comparing apples to apples, with each company having their own edge in the industry, we can still compare and contrast key metrics to identify any value within the space, or the best value.


P/E Ratio

Forward P/E Ratio

Operating Margin

Expected Revenue Growth






Under Armour















Source: Yahoo! Finance.

For retail investors, the P/E ratio is one of the most tracked metrics for finding investment opportunities. However, since investing is the art of predicting the future, a forward P/E ratio might be more useful, showing investors both expected bottom-line growth and a stock's premium relative to future expectations. Then, operating margins are quite useful in identifying companies that might have room for profit improvements. Lastly, expected revenue growth is one of the key drivers in determining how the market values a company.

With that said, Nike, Under Armour, and Hanesbrands all have similar multiples and growth. But in looking at forward P/E ratios, it's clear that Hanesbrands is expected to see significant margin improvements; its operating profit increased 34% in the first quarter versus revenue growth of just 12%.

Nike is clearly the most popular name in the industry; but at 21.7 times forward earnings with expected growth of 9.5%, it's the most expensive and slowest growing.

Lululemon looks to have a good ratio of growth and value. However, its operating margin relative to the industry is a bit alarming. Furthermore, Lululemon saw its operating margin decline in each of the last two years, due to both competition and increased costs. Therefore, investors must wonder if margins are sustainable; and if not, implied metrics may not be accurate.

Under Armour is nearly three times more expensive than Hanesbrands but growing only 2.5 times faster. Typically, if a company has twice the premium of a peer, then investors should want twice the growth to imply equal value.

Also, let's not forget the fact that shares fell 8% on slowed growth fears after Under Armour announced earnings. Essentially, if a company grows 36% in the first quarter and then guides for 24% growth for the full year, then 30%-plus growth will not occur. This is a new concept for Under Armour shareholders and might mean more downside pressure to better price the stock.

Final thoughts
While none of these companies appears to be particularly a bad value, and all are growing, Hanesbrands looks especially intriguing, and conveniently because of its sportswear segment.

Currently, Hanesbrands is benefiting from the acquisition of Maidenform, which drove 15% growth in the innerwear segment during the first quarter despite a 6% decline without the addition of Maidenform. Therefore, Hanesbrands' business minus the acquisition would not see 10% growth.

However, the acquisition of Maidenform and the success of its activewear segment are driving growth, while the latter drives margins higher. Specifically, Activewear accounted for 29% of the company's first-quarter revenue but 45% of its operating profit. Therefore, as the segment grows larger, the company's margins should increase, which consequently means higher profits and a lower P/E ratio. Hence, it is this fact, and Hanesbrands' discount to forward earnings, that makes it the best value in the segment.

Is this techwear innovation the biggest thing to come out of Silicon Valley in years?
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Brian Nichols owns shares of Under Armour. The Motley Fool recommends lululemon athletica, Nike, and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers